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            Alaskan halibut, caught by a century-old Seattle boat, provides a glimpse of Amazon’s strategy with Whole Foods | The Seattle Times
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                            <h1 class="article-title p-name entry-title">
                                Alaskan halibut, caught by a century-old Seattle boat, provides a glimpse of Amazon’s strategy with Whole Foods
                            </h1>
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                                <time class="line published dt-published" datetime="2019-04-28 06:01:07">April 28, 2019 at 6:01 am</time> <time class="line update updated dt-updated" datetime="2019-04-29 15:33:39">Updated April 29, 2019 at 3:33 pm</time>
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                                        <a href="/author/cap-ben-romano/" rel="author" class="p-author h-card hcard url fn">Benjamin Romano</a> <a target="_blank" href="https://www.twitter.com/bromano"></a>
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                                        <span class="p-author fn">Seattle Times business reporter</span>
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                                <p>
                                    From the deck of his 106-year-old halibut schooner, undergoing a seasonal overhaul at Fisherman’s Terminal in Seattle, skipper Wade Bassi has better insight than most into what’s happening at Amazon-owned Whole Foods Market, at least as pertains to the product he knows best.
                                </p>
                                <p>
                                    While he doesn’t buy halibut much — he’s got a freezer full of it — Bassi, 43 years a fisherman, keeps an eye on how it’s handled and presented in the grocery stores and fish markets.
                                </p>
                                <p>
                                    “When you look at nice halibut, I mean it is pure white,” he said. “And it is flaky-looking, and it is beautiful. It’s translucent. If you’ve got that in the fish market, people are going to buy it.”
                                </p>
                                <p>
                                    A few days earlier, Whole Foods touted a rarely seen promotional price for halibut as part of its ongoing campaign to revise the grocery chain’s high-cost reputation while maintaining its image for quality and sustainability.
                                </p>
                                <p>
                                    “Whole Foods is one of the better ones, to be honest with you,” Bassi said. “But you know, Whole Foods, whole paycheck. … They usually do charge way more for everything than anywhere else. Which really surprises me that they’re selling this for $16-something a pound, because they’re not making anything on it.”
                                </p>
                                <p>
                                    Whole Foods’ halibut deal opens a window into Amazon’s grocery strategy as it seeks to combine the defining characteristics of each brand, leverage its juggernaut Prime membership program and take a larger share of the grocery business from competitors such as Walmart, Kroger and Costco.
                                </p>
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                                <p>
                                    It also draws a long line from a major Seattle industry with roots in the 19<sup>th</sup> century to the dominant economic force of the 21<sup>st</sup>.
                                </p>
                                <p>
                                    Amazon bought Whole Foods in August 2017 for $13.7 billion, its largest acquisition and an aggressive move into the grocery business.
                                </p>
                                <p>
                                    The combination of the two has been steady, said Tom Forte, who follows Amazon as a managing director at the D.A. Davidson brokerage. In a few more years, he said, “You won’t recognize the original Whole Foods.”
                                </p>
                                <p>
                                    Within months of the acquisition, Forte said, Whole Foods was selling cheaper cage-free eggs and organic ground beef, prices it said were a result of the deal.
                                </p>
                                <p>
                                    Then came the integration of Prime, Amazon’s $119-a-year shipping and media-subscription program, which Amazon founder Jeff Bezos said last year had surpassed 100 million members. In Whole Foods, Prime operates as a hybrid of the customer-loyalty discount programs offered by most grocers — in which consumers trade details of their purchasing habits for lower prices — and a paid membership like at Costco or Sam’s Club.
                                </p>
                                <p>
                                    Whole Foods stores have been festooned with yellow and blue signs pointing out Prime member benefits, one of which was fresh halibut fillets priced at $16.99 a pound, albeit only for a week earlier this month.
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                                <p>
                                    “I was shocked to see that level,” said Tyler Besecker, president of Mercer Island-based Dana F. Besecker Company, the largest buyer of Pacific halibut. The price, which was matched at Kroger-owned QFC stores in the region last week, is “as low as I’ve ever seen.” (Besecker does not currently supply Whole Foods.)
                                </p>
                                <p>
                                    Fresh halibut fillets routinely sell for $24 to $28 a pound, and often more.
                                </p>
                                <p>
                                    He said there’s little if any room for a profit at the promotional price offered by Whole Foods and QFC. “They might be selling those at cost or as loss leaders just to get people into the stores,” Besecker said.
                                </p>
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                                <p>
                                    In the competitive grocery business, promotions like this happen all the time. The thinking is that shoppers will be attracted by the discount on a staple or a prestige item, and then fill their carts with other groceries sold at a profit.
                                </p>
                                <p>
                                    A Whole Foods spokeswoman declined to comment on pricing. The temporary halibut discount is one of more than 300 such Prime promotions Whole Foods plans in the next few months. The company also said it was lowering prices across the store, its third such announcement since the acquisition.
                                </p>
                                <p>
                                    At the seafood counter in the Whole Foods store on Westlake, surrounded by Amazon headquarters buildings, a sign advertised “First of the Season Fresh Alaskan Halibut” and sported the blue Marine Stewardship Council (MSC) Certified Sustainable Seafood label.
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                                <p>
                                    Whole Foods has been a pioneer in sustainable-seafood marketing, beginning in 1999 when it began to stock fish with the MSC label. In the mid-2000s, Pacific halibut fishermen sought the certification — a system of third-party audits that tracks seafood from catch to market — and Whole Foods was there from the beginning.
                                </p>
                                <p>
                                    “They were the first ones to market the MSC halibut,” said Bob Alverson, head of the Fishing Vessel Owners Association, representing boats that catch halibut and black cod and a driver of the certification effort. “It turned into quite a marketing advantage. Whole Foods saw that early. They were focusing on sustainable, high-quality food products. They had quite a bit of foresight, I think, in that direction.”
                                </p>
                                <p>
                                    The certification comes with added costs borne by the fishermen and buyers, and passed on to consumers. But it’s also an assurance “that people are watching out for the resource,” he said.
                                </p>
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                                <p>
                                    As it tries to convince people it has lower prices, Whole Foods has been very careful to maintain the reputation built on products like MSC-certified halibut.
                                </p>
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                                        <img data-ratio="1.5" data-caption="Amazon-owned Whole Foods touted a price cut on halibut as part of an announcement recently about lower prices on hundreds of items. (Ellen M. Banner / The Seattle Times)" class="lazy" alt="Amazon-owned Whole Foods touted a price cut on halibut as part of an announcement recently about lower prices on hundreds of items. (Ellen M. Banner / The Seattle Times)" src="https://www.seattletimes.com/wp-content/themes/st_refresh/img/lazy-loading-14x9.png" data-src="https://static.seattletimes.com/wp-content/uploads/2019/04/120109-1020x680.jpg" data-srcset="https://static.seattletimes.com/wp-content/uploads/2019/04/120109-300x200.jpg 300w, https://static.seattletimes.com/wp-content/uploads/2019/04/120109-768x512.jpg 768w, https://static.seattletimes.com/wp-content/uploads/2019/04/120109-1024x683.jpg 1024w, https://static.seattletimes.com/wp-content/uploads/2019/04/120109-780x520.jpg 780w, https://static.seattletimes.com/wp-content/uploads/2019/04/120109-1020x680.jpg 1020w, https://static.seattletimes.com/wp-content/uploads/2019/04/120109-1560x1040.jpg 1560w, https://static.seattletimes.com/wp-content/uploads/2019/04/120109-375x250.jpg 375w" data-sizes="(max-width: 767px) calc(100vw - 20px), (max-width: 1019px) calc(100vw - 30px), (max-width: 1044px) calc(100vw - 60px), 970px" /><noscript><img data-ratio="1.5" data-caption="Amazon-owned Whole Foods touted a price cut on halibut as part of an announcement recently about lower prices on hundreds of items. (Ellen M. Banner / The Seattle Times)" class='' alt='Amazon-owned Whole Foods touted a price cut on halibut as part of an announcement recently about lower prices on hundreds of items. (Ellen M. Banner / The Seattle Times)' src='https://static.seattletimes.com/wp-content/uploads/2019/04/120109-1020x680.jpg' srcset='https://static.seattletimes.com/wp-content/uploads/2019/04/120109-300x200.jpg 300w, https://static.seattletimes.com/wp-content/uploads/2019/04/120109-768x512.jpg 768w, https://static.seattletimes.com/wp-content/uploads/2019/04/120109-1024x683.jpg 1024w, https://static.seattletimes.com/wp-content/uploads/2019/04/120109-780x520.jpg 780w, https://static.seattletimes.com/wp-content/uploads/2019/04/120109-1020x680.jpg 1020w, https://static.seattletimes.com/wp-content/uploads/2019/04/120109-1560x1040.jpg 1560w, https://static.seattletimes.com/wp-content/uploads/2019/04/120109-375x250.jpg 375w' sizes='(max-width: 767px) calc(100vw - 20px), (max-width: 1019px) calc(100vw - 30px), (max-width: 1044px) calc(100vw - 60px), 970px' data-sizes='(max-width: 767px) calc(100vw - 20px), (max-width: 1019px) calc(100vw - 30px), (max-width: 1044px) calc(100vw - 60px), 970px' /></noscript>
                                        <figcaption class="article-figure-caption">
                                            <span class="caption">Amazon-owned Whole Foods touted a price cut on halibut as part of an announcement recently about lower prices on hundreds of items. (Ellen M. Banner / The Seattle Times)</span>
                                        </figcaption>
                                    </figure>
                                </div>
                                <p>
                                    <strong>Whole Foods future</strong>
                                </p>
                                <p>
                                    New signs in stores appeared this month, spelling out the value proposition it’s trying to strike: “New lower prices. Same high standards,” reads one, against a background image of carrots.
                                </p>
                                <p>
                                    At the same time, the company claims its new prices and Prime deals have saved customers “hundreds of millions of dollars” since the Amazon acquisition.
                                </p>
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                                <p>
                                    If prices are being lowered and the quality bar stays the same, something else has to give.
                                </p>
                                <p>
                                    Analysts provided a few theories:
                                </p>
                                <p>
                                    Amazon could be willing to accept losses or slimmer profits within Whole Foods, as it has done in other businesses, in an effort to expand its customer base.
                                </p>
                                <p>
                                    “Do they take the profit from their non-retail efforts, which today is primarily cloud computing, and then reinvest those profits to take share in grocery?” Forte said.
                                </p>
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                                <p>
                                    That could eventually open up an avenue to growth as the rate of expansion slows in Amazon’s broader U.S. retail sales.
                                </p>
                                <p>
                                    “That’s why they need grocery to work,” Forte said. “Grocery’s a very big category.”
                                </p>
                                <p>
                                    Whole Foods could also <span class="annotated" data-st-annotation-ref="1792ba">press suppliers to reduce their prices</span>, essentially cutting their profit.
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                                <p>
                                    “The worry with that is that it puts the squeeze on the producer upstream,” said Ananth Iyer, a professor at Purdue University whose research includes sustainability in supply chains. If producers are squeezed too much, he noted, they may start to cut corners.
                                </p>
                                <p>
                                    So far, there’s no evidence this is happening in halibut, where fishery practices have been carefully managed with a goal of sustainability for nearly a century. Also, Whole Foods does not yet have the scale as a buyer to dictate prices the way a company like Costco does.
                                </p>
                                <p>
                                    Forte said that even if it did have such clout, this would be a risky strategy that would undermine the very attributes of the Whole Foods brand that make it most valuable.
                                </p>
                                <p>
                                    Another theory is that Amazon could apply more of its technology and expertise in logistics to create supply-chain efficiencies that would maintain its profits while benefiting producers and consumers, particularly with perishable grocery products, Iyer said. This is part of the promise of the acquisition in the first place.
                                </p>
                                <p>
                                    “That’s a powerful combination,” Forte said. “The sustainable, the organic, the healthier food — all those qualities of Whole Foods, with the supply-chain technology of Amazon. It plays to the strengths of both sides.”
                                </p>
                                <p>
                                    Forte said he expects Amazon to continue its aggressive moves on grocery pricing at Whole Foods. But he wonders when the price cuts will be broader, particularly as Amazon competes with the likes of Walmart and Kroger for a bigger slice of U.S. food and beverage retail sales, which totaled $726 billion in 2017. Whole Foods said it has lowered prices on hundreds of items, with an emphasis on fresh produce.
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                                <p>
                                    Forte described his attempt after the acquisition to get the ingredients for Rice Krispies Treats at Whole Foods. It was perhaps doomed from the start: Whole Foods doesn’t carry Rice Krispies. But he found an organic brown rice puff cereal and organic marshmallows. They were “so wildly expensive that we didn’t finish the exercise. I took the kids to Walmart and bought the ingredients for a pittance,” Forte said.
                                </p>
                                <p>
                                    That points to the bigger question of how Amazon plans to position Whole Foods for the long term in its expanding array of physical retail-grocery formats. It now has 11 automated Go convenience stores and is rumored to be planning a new, low-priced grocery chain of its own that may deploy the same cashierless checkout technology.
                                </p>
                                <p>
                                    Meanwhile, Whole Foods is not opening any new 365 stores, a smaller, lower-priced version of the main brand highlighting the company’s private-label products. Whole Foods co-founder and CEO John Mackey said in an internal memo that the “price distinction between the two brands has become less relevant” as Whole Foods lowered its prices, Yahoo Finance <a href="https://finance.yahoo.com/news/amazonowned-whole-foods-scraps-smaller-365-store-expansion-203543290.html" target="_blank" class="content-link external">reported</a> earlier this year.
                                </p>
                                <p>
                                    Amazon, too, is finding success with a growing stable of private-label brands — it had more than 100 as of last July, according to Coresight Research, double the number in 2017. One of these, Solimo, sells generic versions of everything from K-Cup coffee pods to Epsom salts to garbage bags and racked up more than $6 million in sales in January alone, according to data analysis firm 1010data.
                                </p>
                                <p>
                                    Of course, there’s nothing generic about a “fresh, sustainable wild-caught halibut fillet.”
                                </p>
                                <p>
                                    <strong>Back on the schooner</strong>
                                </p>
                                <p>
                                    The day after Easter, Bassi and his crew — three family members and an unrelated father-and-son team — loaded up the Polaris, one of four century-old wooden schooners still chasing halibut out of Seattle. (The broader Washington-based halibut fleet numbers about 100 vessels.) Bassi’s father fished on the Polaris, which Bassi co-owns with&#160;Rolfe McCartney. Bassi’s grandfather fished halibut back when schooners carried small dories out to the fishing grounds, which made the landing of a fish that can grow to 500 pounds all the more exciting.
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                                <p>
                                    The Polaris motored out of Fisherman’s Terminal and through the Ballard Locks to begin the three-day journey through the Inside Passage to Ketchikan, Alaska. There, they take on tons of ice and bait, herring for the black cod Bassi will target first, and later chum salmon, codfish or octopus for the halibut.
                                </p>
                                <p>
                                    From a base in Kodiak, Alaska, the Polaris makes a series of trips, at sea for a week or longer at a time, to fish as far away as Attu Island at the far western edge of the Aleutian Islands chain. “It’s a big range that we fish,” Bassi said.
                                </p>
                                <p>
                                    The Polaris will trail long lines of hooks, leaving them to soak for several hours before reeling them in. The fish are stunned, bled and dressed, and put on ice in the hold. It is this fishing method that contributes to the quality of the halibut and sustainability of the fishery, as it reduces by-catch — the inadvertent taking of other <span class="annotated" data-st-annotation-ref="53071e">species</span>.
                                </p>
                                <p>
                                    They negotiate to sell the fish with four or five buyers, such as Besecker, at a price that fluctuates throughout the season. This is a peak time of year for halibut, with consumers seeking out fresh fish for Easter and Mother’s Day, Besecker said. Fishermen are typically paid between $5 and $6 a pound for halibut.
                                </p>
                                <p>
                                    The Alaskan halibut fishery has its troubles — as nearly all fisheries do — but has been rationalized and managed successfully, particularly over the last quarter-century. Alverson, a commissioner on the Seattle-based International Pacific Halibut Commission, which has managed catch limits for U.S. and Canadian fishermen since 1924, described it as a stable but declining resource.
                                </p>
                                <p>
                                    This year, the <a href="https://iphc.int/management/fisheries" target="_blank" class="content-link external">halibut fishery</a> in the Northern Pacific and Bering Sea is <a href="https://iphc.int/data/landings-2019" target="_blank" class="content-link external">capped at 29.4 million pounds</a>, with most of that allocated to commercial fishing and smaller amounts reserved for recreational and tribal fishing, as well as by-catch of other commercial fisheries.
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                                <p>
                                    Alverson summed up the journey from a wooden fishing boat in the Bering Sea to the fish counter of a grocery store owned by a company that has redefined modern buying and selling: “It’s Seattle old school meets Seattle new school with Amazon.”
                                </p>
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                                        <span class="name">Benjamin Romano:</span> <span>206-652-6593</span> or <span><a href="mailto:bromano@seattletimes.com">bromano@seattletimes.com</a>;</span> <span>on Twitter: <a target="_blank" href="https://www.twitter.com/bromano">@bromano</a>.</span>
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